Sunday, May 10, 2015

Austerity begets austerity?

Currently most of the western countries are embarking upon some form of austerity measures (reduction of debt-to-GDP ratio), to various extents. In some cases, these measures are forced by its neighbours and allies (Ex: Greece). There are many info available on austerity measures. However, I tried to put my hypothesis in simple terms. My hypothesis is that austerity only leads to further austerity measures, until the country goes broke or some innovative steps are taken to break this vicious cycle, depicted in the figure below:

While being one amongst the many suffering because of these measures, what confounds me is that why none is asking the right questions:

Explain how these measures would help us in the short and long term? (in layman terms but quantitatively not equivocally!)

Countries have been deploying austerity measures since 2008. Prove that it has worked!

If some are being benefitted by these measures, who are they and why? Why not others? When would other be benefitted?

Irrespective of many economic theories and empirical studies that would support anti-austerity, why are you deploying those measures? Why are the banks forcing such measures? How they reason it will benefit our economy?

It is a simple business/economic knowledge that spends cuts are good only if they become investment. This principle is well known to almost all CEOs and CFOs. If so, show how the spending cuts have generated more income, in an attempt to reduce to the debt-to-GDP ratio.

Who is responsible for the mess, in the first place?

I'm no economist but a "student" interested in the socio-economic-strategic affairs. I have tried to put, in simple terms, how austerity would only breeds further austerity until either the cycle or the country is broken. I would very much like to hear the counter arguments to this hypothesis! (Please leave your thoughts in the comments below...)